Q3 2024 Texas Capital Bancshares Inc Earnings Call

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Unknown Executive: Thank you all for standing by for the Texas Capital Bancshares Third Quarter, 2021 earnings conference call. We'll be starting today's call in a few moments. We are just allowing all attendees to get connected before we begin today's conference. Thank you all for standing by.

Speaker Change: Thank you all for standing by for the Texas Capital Bank shares third quarter, 2020-4 earnings conflict call.

Speaker Change: Will be starting today's cool winners' new moments, we are just allowing all attendees to get connected before the day's conference.

Speaker Change: Thank you all for standing by.

Unknown Executive: Good morning, all, and thank you all for attending the Texas Capital Bancshares third quarter 2021 earnings conference call.

breaker: Good morning, all and thank you all for attending the Texas Capital Bank Chairs, third quarter, 2021 earnings conference call. My name is Breaker and I will be your moderator for today.

breaker: My name is Breaker, and I will be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. Thank you.

breaker: All lines will be muted during the presentation portion of the call. Would an opportunity for questions and answers at the end? Thank you. I would now like to pack the conference over to your host. Jocelyn Kukulka, Head of Investor Relations. Thank you. You may proceed, Jocelyn.

Jocelyn Kukulka: I would now like to pass the conference over to your host, Jocelyn Kukulka, head of Investor Relations. Thank you. You may proceed, Jocelyn.

Jocelyn Kukulka: Good morning, and thank you for joining us for TCBI's third quarter 2024 earnings conference call. I'm Johnson Kukulka, head of investor relations. Before we begin, please be aware that this call will include forward-looking statements that are based on our current expectations of future results or events. Forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those statements. Our forward-looking statements are as of the date of this call, and we do not assume any obligation to update or revise them. Statements made on this call should be considered together with the cautionary statements and other information contained in today's earnings release.

Speaker Change: Good morning, and thank you for joining us for TCBI's 3rd quarter 2024 earnings conference call. I'm Jocelyn Kukulka, head of Investor Relations.

Jocelyn Kukulka: Before we begin, please be aware that this call will include forward-looking statements that are based in our current expectations of future results or events. Forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from those statements.

Jocelyn Kukulka: Our forward-looking statements are as of the date of this call and we do not assume any obligation to update or revise them. Statements made on this call should be considered together with the cautionary statements and other information contained in today's earnings release. Our most recent annual report on Form 10K and subsequent violence with the SEC.

Unknown Executive: Our most recent annual report on Form 10-K and subsequent violence with the SEC.

Unknown Executive: We will refer to slides during today's presentation, which can be found along with the press release in the investor relations section of our website at texascapitalbank.com.

Speaker Change: We will refer to slides during today's presentation, which can be found along with the press released in the Investor Relations section of our website at TexasCapitalBank.com. Our speakers for the call today are Rob Holmes, President and CEO, and Matt Skrillock, CFO. At the conclusion of our prepared remarks, our operator will open up the call for Q&A.

Unknown Executive: Our speakers for the call today are Rob Holmes, President and CEO, and Matt Skrillock, CSO.

Unknown Executive: As the conclusion of our prepared remarks, our operator will open up the call for Q&A.

Robert Holmes: And now I'll turn the call over to Rob for opening remarks. Thank you for joining us today. This quarter marks three years since the announcement of our strategic plan in September of 2021. with the platform. We could run this platform and be perfectly happy with it as it is for a long period of time, but we will continue to be opportunistic, if you will.

Jocelyn Kukulka: and now I'll turn the call over to Rob for opening remarks.

Rob Holmes: Thank you for joining us today. This quarter marks three years since the announcement of our strategic plan is September of 2021.

Rob Holmes: Our collective Anne deliberate actions over the last several years, including those announced last month, continue to establish our firm as worthy of serving the best clients in our markets.

Rob Holmes: with Superior Product Brett and Baker Execution, increasingly resulting in high-quality financial outcomes, which we believe the model would ultimately be capable of producing.

Rob Holmes: On an adjusted basis, this quarter featured record performance across a variety of important financial metrics.

Rob Holmes: Quarterly return on average assets of 1%. Return on common equity of 10%.

Rob Holmes: Pre-provision Net Revenue of $115 million. See income of $64.8 million. And earnings first share of $1.59 all reach record levels since the beginning of the transformation.

Rob Holmes: While investment banking, trading income, and tangible book value per share, reach the higher levels in firm history.

Rob Holmes: With unquestioned, market momentum and increasingly complete and differentiated platform and robust capital liquidity, we are well positioned to execute throughout 2025.

Rob Holmes: Sustained multi-year growth in our FIA Comaries of Focus, continued again this quarter. As Treasury product fees, wealth management fees, and investment making and trading income delivered $54 million in non-interest revenue.

Rob Holmes: A 25% lay quarter and 32% year over year.

Rob Holmes: This is the second consecutive record quarter since the beginning of the transformation. As a year-to-date adjusted, total non-interesting come is 19% of adjusted total revenue.

Rob Holmes: Farmerly within our target range for being in come contribution for full year 2025.

Rob Holmes: This V income realization is simply a market-facing indicator of the increased frequency and quality of client solutions being delivered across our platform.

Rob Holmes: Investor banking and trading income increase 32% quarter of a quarter to a record of $40.5 million led by syndications, capital markets, and sales and trading.

Rob Holmes: Our syndication does this execute a record number of 10 batches in the quarter, placing a 8 in the middle market league table nationwide. As our distinct capabilities enable clients to access bank funding in what will still a tight market.

Rob Holmes: We also continue to differentiate by facilitating client access to non-bank financing. With capital markets delivering records this quarter in both fees and transaction volumes.

Rob Holmes: The investment banking platform, while still maturing above product offerings and execution capabilities, is building a base of consistent and repeatable revenues that will be both a differentiator in the marketplace and a meaningful contributor to future earnings.

Rob Holmes: The Treasury Solutions Platform, which provides both payment products and services in parity with a major money center banks.

Rob Holmes: with a differentiated client journey, which is faster and more efficient, is increasingly realizing growth and stable and reoccurring revenue, resulting from three years of significant investment.

Rob Holmes: Client and product onboarding continues to be on-pays with expectations. As year-over-year treasury product, these increase 16%. Let's buy a 10% increase in growth payment revenues year today.

Rob Holmes: This is now six consecutive quarters of year-over-year growth exceeding three times that experienced body industry.

Rob Holmes: The full build of the private wealth business, which will be completed by year-in, includes an entirely new operating platform, along with significantly enhanced product and services.

Rob Holmes: and is providing early signs of increased client adoption.

Rob Holmes: with wealth and related fees increasing 9% this quarter. The materially enhanced client journey should enable improved connectivity to the rest of that platform, allowing for accelerated client adoption, moving in to 2025 and significant future scale.

Rob Holmes: As it does for multiple quarters, while our platform breath is enabling new client acquisition at a pace consistent with internal expectations.

Rob Holmes: With year-to-day new relationships onboarded, now over 110% of new relationships for full year, 2023, lower system-wide client demand for bank credit has limited immediate earning asset expansion.

Rob Holmes: We were, however, able to, again, leverage our disciplined capital allocation process.

Rob Holmes: This quarter to support continued buildout of our industry-focused corporate banking platform.

Rob Holmes: by acquiring it portfolio of approximately $400 million in committing exposure to companies in the healthcare sector.

Rob Holmes: Texas Capital has significant institutional knowledge of many of the companies in the portfolio, which, importantly, are supported by sector-focused sponsors with notable track records of value creation.

Rob Holmes: These clients will benefit from an extensive solutions-focused platform.

Rob Holmes: With Revenuecycle Management, Healthcare, Affent Base Learning, and other sector-specific products integrated with differentiated cash management, commercial banking, and the vessel-making capabilities.

Rob Holmes: The multi-year trend of clients increasingly leveraging our distinct cash management capabilities continue this quarter.

Rob Holmes: with non-broken interest-ferred deposits.

Rob Holmes: Now up 24% for $3.1 billion a year, importantly, non-interest bearing deposits, excluding mortgage finance, increased 4% to $3.4 billion this quarter as our sustained focus on earning the right to become our client's primary operating bank is having the anticipated balance sheet

Rob Holmes: In addition to another financial performance, we remain focused on our consistently stated objective of financial resilience.

Rob Holmes: The firm finished the quarter with tangible common equity to tangible assets of 9.65% ranked first amongst the largest banks in the country. A reserve ratio of 1.87% excluding mortgage finance loans, which is top-decel amongst our peer group. And liquid assets of 27% above peer mediums.

Rob Holmes: Our commitment to achieving a proof financial performance is unwavering in our position of unprecedented strength is enabling us to serve clients and our markets to seek a financial partner to support them through all stages of their business or personal life cycle.

Rob Holmes: We will drive attractive through cycles, shareholder returns with both higher quality earnings and a low cost of capital as we ramp high value businesses through increased climate adoption improved client journeys in real life operational efficiencies.

Rob Holmes: All objectives that we make significant headway on your day with road maps to accelerate scale and 2025.

Speaker Change: Finally, I want to acknowledge the dedication of our employees who execute this strategy every single day and are the unquestioned driving force behind the continued success of our firm. Now I'll turn it over to Matt for the financial results.

Matt Skrillock: Thanks, Rob. Good morning. Starting on slide five, total adjusted revenue increased 38 million 14% for the quarter. The 35 million, as a 23.5 million dollar increase in net interest income, was augmented by 14.4 million or 29% lead quarter increase and non-interest revenue.

Matt Skrillock: The 64.8 million of feet and come to liver this quarter is the high watermarks as we began the transformation in January of 2021. Our year today, adjusted non-instrument of 157 million, is more than double the amount delivered in full year 2020. When normalizing, we're out through a lot of fees and adjusting for businesses we've sold or wound down.

Jocelyn Kukulka: Kukulka, totally adjusted, non-Extrous expense increased 1% in the quarter, as expected grew with an occupancy and communications and technology expense, was partially offset by reduction in salary and benefits costs.

Jocelyn Kukulka: Taken together, link quarter adjusted TPNR increased 45% to $115 million. This marks the resumption of quarterly operating leverage against a comparable quarter in the prior year. At you, the quarter earlier then indicated during the July earnings call.

Jocelyn Kukulka: The modest reduction in this quarter's provision expense to 10 million resulted from slowing charge-offs in moderate loan growth. Partly offset by a sustained, conservative posture we lay to our economic outlook.

Jocelyn Kukulka: Unidate provision expense as the percentage of average LHI excluding mortgage finance is within our through cycle range at 39 basis point annualized.

Jocelyn Kukulka: net income economy when including the realization of losses associated with the AFS bond portfolio repositioning and certain non recurring items is negative 65.6 million while adjusted net income economy was 74.3 million, a 36.6 million or 97% make quarter.

Jocelyn Kukulka: The tax rate for the quarter decreased to 23.3%, and we expect the full year tax rate to be around 34%.

Jocelyn Kukulka: Our balance-y positioning remained exceptionally strong, with period and cash balance of the 13% of total assets and cash insecurities of 27%. Both hire this quarter and in line with here in targeted ratios.

Jocelyn Kukulka: Any period gross LHI balances increased approximately 522 million or 2% lean quarter. German primarily by slightly higher than anticipated seasonal growth in the mortgage finance business and the acquisition of a C&I healthcare loan portfolio which closed at quarter end with funded balances of approximately 330 million.

Jocelyn Kukulka: Total deposits increased by 2 billion or 9% during the quarter, with gains in both commercial non-interest bearing and interest bearing accounts. This core client growth should support continued proactive reductions of our highest cost deposits where we have limited additional product touch points elsewhere on the platform.

Jocelyn Kukulka: Laws of supporting a multi-quarter low loan to the positive ratio of 86%.

Jocelyn Kukulka: AOCI improved by 240 million in the quarter or 65 percent. We related to both the boundary positioning and the 80-bates is points to climb in five-year treasury rates during the period.

Jocelyn Kukulka: Total gross LHI excluding more finance is relatively flat length quarter, increasing a modest 71 million dollars. As limited credit men experienced over the last 12 months and now increasing commercial real estate payoffs to press low volumes across the industry.

Jocelyn Kukulka: Commercial loans grew 434 million in this quarter, inclusive of the 330 million loan portfolio acquisition that robbed detail, and are up 602 million or 6% year over year.

Jocelyn Kukulka: Our expectation that the sustained taste of new client acquisition would result in modest balance sheet and loan growth this year is occurring. Although the slower pace been contemplated in our original 2024 guidance.

Jocelyn Kukulka: Of course we're real estate period in balances decreased 374 million or 7% in the quarter.

Jocelyn Kukulka: is payoff rates continue to be elevated in current and trailing 18-month-a-region limited given the market backdrop.

Jocelyn Kukulka: 80 million of the client resulted from pay off in the office portfolio, which now comprises just 2% of total loans.

Jocelyn Kukulka: Over all the real staple fellow remains way to multi-family, which is 2.3 billion or 44% of outstanding balances, reflecting both our deep experience in the space and observe performance through credit and interest rate cycles.

Jocelyn Kukulka: It just spades seasonal growth and mortgage finance was augmented by the reduction of 30 and mortgage rates experience from early August to mid September resulting in a link quarter increase in average mortgage amounts along to $795 million or 18% to $5.2 billion.

Jocelyn Kukulka: Given ongoing rate volatility remain cautious on the outlook, with now full year expectations for year over your increase in average where house volumes of 10% to 4.5 billion, supported by more graduates near 640 during the fourth quarter.

Jocelyn Kukulka: Any period of positive bounces increased 9% quarter of a quarter and 1.1 billion or 6% when excluding the seasonally elevated contribution of mortgage finance.

Jocelyn Kukulka: Sustain, success, and interacting quality funding associated with our core offerings, enable growth and commercial client, and non-insuring deposits, a 4% and a quarter. While broken deposits remain at a 10-year low, comprising approximately 2% of total deposits.

Jocelyn Kukulka: This positive trend will continue to support over the coming quarters, select a reduction of the highest cost of the positive, where unable to earn additional visits enough research to generate and appropriate return on capital.

Jocelyn Kukulka: Average more to announce the positives were 116% of average numbers to announce the loans. A slight decline in quarter-requordering consists of our guidance.

Jocelyn Kukulka: We expect the ratio of average mortgage finance deposits to average mortgage finance loans to to climb to 110% in the fourth quarter. As predictable changes and clients deposit should match in anticipated warehouse fundings.

Jocelyn Kukulka: As a reminder, there's seasonality in these deposits, as annual tax payments begin remittance out of escrow accounts in the second half of the fourth quarter, which continues through January.

Jocelyn Kukulka: As detail and previous calls select mortgage finance deposits, teacher relationship pricing credits, which are applied to both clients and mortgage finance and commercial loans based on each loan type's contribution to interest income during the quarter.

Jocelyn Kukulka: Attribution of interest credits are expected to follow a similar distribution for the duration of the year, but approximately 60% associated with mortgage finance and 40% aligned commercial loans to mortgage finance clients.

Jocelyn Kukulka: Any period, non-sparing deposits excluding mortgage finance remain 13% of total deposits. And our expectation is that this percentage remains relatively stable in the near term.

Jocelyn Kukulka: Our model that rings at risk increased slightly in the quarter, as the Jocelyn's to the Bountshe composition resulted in marginally less forward down side rate protection, but potentially high levels of absolute net interest income.

Jocelyn Kukulka: The full impact of the 49-day point decline in so-for during the quarter resulted from our largely variable rate loan portfolio repricing down in advance of the Fed's move in late September . The timing of deposit repricing activities are more closely aligned to actual changes in Fed funds rates.

Jocelyn Kukulka: and we expect our initial repricing efforts to be realized by mid-October and are there for only partially reflected in that interest and comes into activity disclosures.

Jocelyn Kukulka: and August the firm continued the multi-year process of effectively rationalizing the legacy balance sheet, selling approximately 1.24 billion available for sale securities and average book yields of 1.23% purchase prior to 2021.

Jocelyn Kukulka: Casperoth, you from the sale, were used to purchase 1.06 billion of security to the yield of 5.26%. Which is expected to contribute an incremental 35 to 40 million in that interesting, common, on an annualized basis.

Jocelyn Kukulka: We do expect continuing investment over the duration of the year, which will improve security of maintaining rate positioning.

Jocelyn Kukulka: That interest is margin expanded by 15 basis points in the quarter, and that interest income increased to 241 million.

Jocelyn Kukulka: Quarterly, net interest income benefited from the impacts of balance you were positioning in the higher earning assets associated with our long-term strategy.

Jocelyn Kukulka: and Kukulka improvements in both mortgagement, volumes and yields were supported by the lower self funding ratio.

Jocelyn Kukulka: As Ministrywide Acid Quality Novelization Continues, so does our multi-year posture, prudently building the reserve to effectively address communicated legacy credits and buffer against potential impact of an uncertain economic outlook.

Jocelyn Kukulka: The total allowance for credit loss, including off balance sheet reserves, increased $6.5 million on a link quarter basis to $319 million, up $28 million a year over year, which when excluding mortgage finance is 1.87% of total L.H.I., a high-since the adoption of CESOL in 2020.

Jocelyn Kukulka: Criticized loans increased slightly to 4% of total LHI. At a decrease in special mention was offset by modest migration of a diversified set of credits with him both the commercial real estate and commercial loan portfolios into substandard.

Jocelyn Kukulka: The period in composition of criticized loans remains weighted toward commercial clients with dependencies on consumer discretionary income, as well as well structured commercial estate loans supported by strong sponsors.

Jocelyn Kukulka: That charge also is 6.1 million or 11% of average LHI were comprised of a small number of commercial credits.

Jocelyn Kukulka: All right, identified legacy problem credits have now been reduced through resolution, worked out and pay off to approximately 16 million, down from 200 million at the end of 2020.

Speaker Change: Consistent with prior quarters capital levels remain at or near the top of the industry. Total regulatory capital remains exceptionally strong relative to both the peer group and our internally assessed risk profile. CC-1 finished the quarter at 11.19%. A 43 basis point decrease from prior quarter, related to the security of positioning and increased risk weighted assets from quarterly loan growth.

Speaker Change: 10,000, that could be 10,000 lawsuits finished at 9.65%.

Speaker Change: was continues to be ranked first amongst the largest banks in the country. While tend to a book value per share increase 14.3% year-year to $66.6 a record level for the firm.

Speaker Change: Our guidance accounts for the market-based forward rate curve, which adds a October 4th implied 50 basis point of additional reduction to the Fed Fund rate November.

Speaker Change: followed by a 25 basis point cut in December, to finish the year at 4.25%.

Speaker Change: which is a 100 basis point to call in since our last earnings call in July.

Speaker Change: Given the significant change in your term rate outlook, we are modestly reducing our revenue guidance to low single digit growth for the full year. Non-Essual expense guidance of approximately 765 million for the year, contemplates the actions taken in September.

Speaker Change: As shown again this quarter, we continue to effectively deploy capital and excess of our 11% CT-1 minimum and support a publisher to your objectives.

Speaker Change: near-term capital priorities remain focused on growing the core of business, improving the teacher earnings generation, and increasing tangible book value per share. All areas where we continue to show material progress.

Speaker Change: Quarterly increases in year over a year, Peep and Argros should continue in Q4 2024 and then for the duration of 2025.

Speaker Change: Finally, while we maintain our conservative outlook, we are reducing our annual provision expense guidance, the 40 basis points from 50 basis points of average LHI, excluding mortgage finance.

Speaker Change: Give him a brief and balance sheet and credit migration trends.

Speaker Change: Moving to 2025, based on the economic and rate outlook as a October 4th, multi-year investments and infrastructure, data and process improvements should continue yielding expected operating in financial efficiencies, enabling targeted additional investment and talent and capabilities.

Speaker Change: A current outlook with planned initiatives and expected revenue for 4-year 2025 to just non-interest expense of approximately 765-770 million.

Speaker Change: Internal estimates against that economic backdrop also contemplate continued industry-leading client adoption and associated growth in our feet and come areas of focus.

Speaker Change: with full-year targeted 2025 total amount interest revenue reaching 240 million.

Speaker Change: Given our focus on leveraging the front of broad platform to serve clients based on their unique needs. Balance sheet expansion, mix, and associated net interest income generation remain the most difficult to estimate due to the dynamic macroeconomic and political backdrop.

Speaker Change: The Marker Raid Outlook, as of early October, incorporated rapid decreases in short-term rates of the next-time months.

Speaker Change: with Fed Fund's Action New Year at 425 and ultimately reaching 350 in June.

Speaker Change: In this outlook, his short-term rates come down, the curve flattened significantly, but the tenure declining to 392 in December, then trafing a 380 in June of next year.

Speaker Change: Internal estimates in that rate environment suggest the potential for high-single to low-double digit full-year average along growth.

Speaker Change: With the positive repricing accelerating by the second half of the year enabling high single digit net interest income growth.

Speaker Change: given 80% of our current loan portfolio is tied to the short end of the curve, but they slower pace reduction and or higher terminal value should improve 2025 and that interest income generation.

Speaker Change: After three years of aggressively building the reserve to reflect our consistently conservative posture, the near-term provision outlook has potential to move towards 30 to 35 basis points of average LHI, excluding mortgage finance in 2025, more closely resembling trailing charge operates while preserving industry leading coverage levels. [inaudible]

Speaker Change: Taking together this outlook suggests achievement of 1.1% ROI in the back half of the next year.

Speaker Change: with the potential for higher levels should the pace and magnitude anticipated cuts moderate.

Speaker Change: Operator, we'd now like to open up the call for questions. Thank you.

Speaker Change: Thank you, Mark. We will now begin the question and answer session. If you would like to ask a question, please press star for the by one on your telephone keypad.

Speaker Change: Thank you for watching!

Speaker Change: We have the first question today from Woody Lay with KBW in my proceed

Woody Lay: Hey, good morning, guys.

Woody Lay: One of the start on the longer strategy and more specifically loan purchases. You know, the healthcare purchase helps sort of stabilize growth in the quarter. Do you think we could see additional loan purchases from here? I'm just trying to get a gauge on the strategy there.

Speaker Change: Hey, Woody, for our Baltic, so...

Speaker Change: I want you

Speaker Change: Consider this...

Speaker Change: and a long purchase if you will.

Speaker Change: We had onboarded a number of bankers from a financial firm that had relationships.

Speaker Change: tied to those looms.

Speaker Change: and we're able to acquire the loans and the relationships that come with those.

Speaker Change: and some of our time.

Speaker Change: and we have a much more robust platform so that we can do many more things with those same clients.

Speaker Change: and Sponsors.

Speaker Change: Thus being more relevant to them and driving a much greater return.

Speaker Change: So, the loan purchase was a result of...

Speaker Change: The Strategic

Speaker Change: that first, if you will, and to give you an example, I have personally already flown and met with.

Speaker Change: The owners of over 80% of the companies that make up those loans.

Speaker Change: So we are not buying low portfolios for low growth or stabilization of loans whatsoever.

Speaker Change: We've onboarded this year, a 100% of the same number of clients that we all onboarded the same time last year.

Speaker Change: at some point those clients will need to borrow and they can either borrow from our balance sheet or we can raise third party capital like we're very good at doing now.

Speaker Change: with record number of transactions and volume this year. We're agnostic.

Speaker Change: to how we solve our clients' needs.

Speaker Change: and we advise them to solve those these based on the best outcome for them.

Speaker Change: but a loan growth will certainly come and has to with the amount of market share that we're taking in the amount of primary relationships that we're onboarding. Like you don't grow P times V.

Speaker Change: in mid to high teens for three years without becoming a primary operating bank for those clients. So you're the primary operating bank, you're talking to them more regularly on a regular basis. That's your talk to them about capital needs on a more frequent basis. And so we're not really concerned about loan growth as a relative matter to the industry whatsoever.

Speaker Change: Going on out on that, Woody is that the reason why we generally give CT1 guidance as opposed to loan growth guidance or by-mac specific guidance, that the way we're going to deploy capital is somewhat dynamic depending on opportunities we have to either fulfill the strategy and or improve tangible book value. So this is simply an action consistent with the capital menu that we've been pretty disciplined in leveraging across the last three years.

Speaker Change: Yeah, and it's good to hear the optimism on the on the one-griss front. You know, growth in the industry has been weaker this quarter. Does it feel like there's sort of a clearing event to get one-gross or ramp back up? Is it, you know, detoxifying or they kind of waiting through the election or just any color on on?

Speaker Change: and when you expect it to ramp up.

Speaker Change: Look, if it's a 4-out, we don't even have to say it's...

Speaker Change: We cover from business banking, which will, if with our pipelines, a bit where top five.

Speaker Change: FBA Leonard of Business Banking, you know, in the very near term.

Speaker Change: and that business is coming out of the ground, little market banking, corporate banking. As you know, we have different segments in corporate banking, TMT, healthcare, FIG, diversify, energy, etc.

Speaker Change: We do see more of the man to log out in certain segments of that than others.

Speaker Change: and the great thing is we cover the entirety with expertise and different products and services for each. I'm not going to predict long growth whatsoever, but I would just say what I said before, we're agnostic to whether they borrow from us or we place private credit or raise institutional debt. But we certainly anticipate with our market share of gains that when low growth does come back and the economy will certainly benefit from that.

Speaker Change: and then maybe just shifting over to the investment banking side. It was a really strong quarter for y'all. If any additional granularity you could provide on sort of what drove the investment banking in coming the third quarter.

Speaker Change: No, I'll start then maybe napkin

Speaker Change: You know, do the number of things.

Speaker Change: Uh-huh.

Speaker Change: I would just say what is signed to see the Ambassador Bank.

Speaker Change: We never...

Speaker Change: We didn't build the investment bank for a different set of clients than the commercial bank or corporate bank or private bank.

Speaker Change: is the same group of clients.

Speaker Change: and it's about...

Speaker Change: One way to provide solutions to their very specific needs. So my point is that they think group effort from the entire uniform to have the record earnings in the bus and bank.

Speaker Change: Having said that, the thing that's most...

Speaker Change: Rewarding if you will on the vessel banking side is

Speaker Change: It came from syndications, which were a top eight arranger of middle market baked in the entirety of the U.S.

Speaker Change: It came from record volumes and fees in capital markets.

Speaker Change: It came from sales and trading and all different pockets of sales and trading, not just mortgage.

Speaker Change: So it is a, it's a, it's a universal, we're increasing.

Speaker Change: source of repeatable and recurring revenues and a much more granular level now. We did do a big deal, but that's not the entirety of why we had a record quarter. So we're really excited about the investment bank.

Speaker Change: and what it is today, but also what it can be. The remembrance is still a lot of pockets, and in vessel, thank you. We have the entirety of the expense base.

Speaker Change: Consumed into the platform for an example, public finance.

Speaker Change: We built sales and trading on the back of mortgage warehouse. I mean mortgage trading, excuse me, which we built on the back of mortgage warehouse. So mortgage trading, so risk, compliance, controls, process procedures, the people to run it, et cetera, technology, all those investments were already within the platform. And then we also had a government not for profit business, covering. [inaudible]

Speaker Change: Schools, Towns, Miss Talies.

Speaker Change: in the life that our consumers of public finance.

Speaker Change: So, will you all you do?

Speaker Change: is you had.

Speaker Change: The sales and traders for underwriting

Speaker Change: of this deck.

Speaker Change: with very little experience.

Speaker Change: and then on the Key and Our Side.

Speaker Change: You've got more things you can offer to the clients you're already covering.

Speaker Change: So it's a revenue synergy and it's an expense synergy and we have that across the entire platform with a lot of artificial intelligence to move forward. So I don't see the investment bank going backwards. It's not going to be straight when you're up, but the strategies proven the clients higher us. I think we're going to invest in banking fees at a faster rate than any firm certainly over the same period that we've been doing those.

Speaker Change: Yeah, I think the record fee quarter wouldn't even just isolate it to the investment bank. So the 54 million that we delivered in the C in Comaries of Focus, which are treasury proud of wealth and investment banking. That's 13% more this quarter than we delivered for full year 2020.

Speaker Change: Got it. Alright, a couple of colors. Thanks for taking my questions.

Speaker Change: Thank you very much.

Speaker Change: We will now move on to the next question, we have then a girl in our wood city, you and I need to open then.

Speaker Change: Thanks for joining us, it seems like you've made a lot of progress. I get that it's a bit of a coil spring here, but when you guys look at 25.

Speaker Change: Just kind of what assumption I was using on mortgage, where has you or the name? I get the every quarter going to be different based on the season out. I'm just kind of looking.

Speaker Change: is going forward. It seems like you clean that up quite a bit behind the scenes. Just any sort of...

Speaker Change: numbers will be helpful.

Speaker Change: Yeah, feel free to title your research and let note the coil spring. I'm not sure that's been used yet. I like it.

Speaker Change: Then we gave it honor.

Speaker Change: Inside a door view for 2025.

Speaker Change: So I don't know that we're going to get a lot more detail on individual yields that are potentially 12 months in front of us.

Speaker Change: I will talk to a bit about the rate curve because you point it does have a pretty significant impact with on balance sheet volumes.

Speaker Change: and on the yield that you move in a 2025.

Speaker Change: So the curve that we use if we're incredibly specific on the date given how much it's been moving was as of early October or so October 4th to be specific. So it exits the year with set fund at 425, set fund moves down to about 350 in June , and then the 10 year which is going to be mostly closely correlated with more advanced volumes, exit to this year at about 39, and then sits at about 38 mid years. So I mentioned in the prepared remarks that the curve starts to flatten. In that environment we think net interest income picks up high single digits.

Speaker Change: Kat, okay, so you looking at a quarterly one-one kind of a run rate by the end of 25. Is that also, I mean, to get more of the Rod team number.

Speaker Change: How do you presume my Vax, or I mean, capital deployment obviously is better for long growth or usage for revenue production. I get that, it's a strong strategy, but does this mean you're going to completely stop buying Vax stock and just kind of how you approach capital deployment. Assuming there's not a lot of activity kind of in the fourth quarter here, it seems like it can slow down a little bit temporarily.

Speaker Change: Yeah, our capital priority has been not really changed, and I think the action of this quarter we pulled about every single lever that management team can pull over the last 12 months.

Speaker Change: I think we're pretty pleased that the stock price makes 5x more generally less appealing at this point. And levels will be repurchased over the previous few years.

Speaker Change: The old evaluate board by box is the same way we have since Rob's arrival. If we think about prioritization of different performance metrics.

Speaker Change: are a way has been one that's increasing in relevance for us since we made the determination that we were unwilling to push the GT1 levels down to the 9 to 10% that was incorporated in the original September 1 strategic plan.

Speaker Change: are viewed that financial resilience, which was a foundation of the company, has only increased an importance, post the events of last spring, so we're likely to keep C.T.1, around that 11% number.

Speaker Change: So we're really focused on

Speaker Change: Generating the right level of PPMR to average assets in a 1-1 ROI, the rate environment I just described I think is one that's fairly punitive.

Speaker Change: should we not experience as many rate cuts and or those rate cuts occur at a slower pace. That's meant a creative to 2025, are we? So our commitment to you guys as we get to this quarter and start to lay out and detail our internal view of 2025's and Angela's and we hope that we've done that for you.

Speaker Change: Good morning, it's alcohol, thanks guys.

Speaker Change: Jocelyn Kukulka.

Speaker Change: Thank you. As a reminder, if you would like to ask any further questions, please press star for the by one on your telephone keypad now.

Jocelyn Kukulka: We now have the next question from Matt Olene with Steven's, you may proceed, Matt.

Matt Olene: Hey, thanks for my go.

Matt Olene: Appreciate all the forward outlooks here. Most of my stuff has been addressed, but I also just want to ask about the impact of the hedges. I think you disclosed the hedge impact this quarter was $18 million or a drag. Just trying to appreciate the impact of the hedge as the national bounces come down as the Fed starts to get overnight and what you're assuming within that 25 guidance. Thanks.

Speaker Change: Yeah, great question Matt, so we hope that we improve the disclosure for you in the earnings presentation. So I go we generally talk about NIH sensitivity, the bottom left.

Speaker Change: We've now depicted both the maturities and the associated receivirates. The majority of those are tied to SOPR. There are some prime swaps, but the majority are tied to SOPR. So you can follow the spot surfer curve of your choosing to make the determination of the pickup in terms of receipt fix, moving back to float. The first big flood of maturities is in the period with a receipt rate of 3, so we'd pick up about 40 basis points.

Speaker Change: as those swaps will ultimately expire.

Speaker Change: Okay, great color and I'll go back and look at that at the disclosure. Thanks for including that. And then just lastly, on expenses, you've given us a good can outlook here for the fourth quarter and for next year, and it sounds like, you know, for the most part, the infrastructure is then built out, but you also talk about technology, and now that's really just improved the operating leverage for the company. Any more color on kind of technology? You're using and how do you're able to kind of effectively keep expense levels flat next year. Thanks.

Speaker Change: Yeah, so there's a...

Speaker Change: That's a really long answer, but in short, we have a persistent buddy model of technology.

Speaker Change: where we're investing a prescribed amount of money every year in change the bank.

Speaker Change: while we tried to be more efficient with how we run the bank.

Speaker Change: As you know, with our Exped-free adoptions and efficiencies that we've taken.

Speaker Change: in the third quarter of this year, first quarter of last year and at other points in time.

Speaker Change: We do have a proficient in read.

Speaker Change: Imagining our operations and eliminating or digitizing certain actions so that we take out the expense, but more importantly or just as importantly we reduce operating risk.

Speaker Change: And we have, you know, over 31st of our tech spend on our own engineers, we're really focused on client journey. So take an issue. There's no way in the world we could have grown P times B, 14 to 17% quarter of a quarter year, every quarter for a long time now without an issue, which is improved client journey, which reduces the time and the amount of money their clients spend to onboard and they can do it in a day instead of five weeks as we talked about this quarter, we will complete the installation of a new platform for our wealth business.

Speaker Change: Our advisors and private bankers have been working doing a great job and hitting a record 15%.

Speaker Change: and Chris and Feeze.

Speaker Change: But they've done it really without the help of the institution. Well, now technology is catching up and our clients will have a better digital experience, a better client journey.

Speaker Change: and so, uh, whatever.

Speaker Change: We now have worked for credit, we didn't have worked for before, and this, you all well know.

Speaker Change: That helps in a lot of ways.

Speaker Change: Gain efficiencies, mind data, have the creativity to measure what we're doing well, what we're not doing. That'll flow straight into our loan system, which...

Speaker Change: Uh, video.

Speaker Change: Through the investment of technology which also reduce operating risk.

Speaker Change: and Gaines of Fissions. So it's happening all over the firm and the investment technology is something that I remember when we started.

Speaker Change: There is a real question whether we could have concerns about us.

Speaker Change: Spinning the money and making those investments and I think with the reductions we've proven when we're actually pretty really good at it.

Speaker Change: and also you got to remember our tech stack is we've written off most of the tech debt.

Speaker Change: and we have one stack and so we're not a combination of two, three or four banks.

Speaker Change: Spinning Money on Technology for one system to talk to another world-wine.

Speaker Change: Clean Text Act that we're investing in and improving, which I think is another, I can make another point, which by definition, if we built the entirety of our text act, with a payments platform, merchant, lockbox, party, etc, over the past three years, by definition, we have the most tech, the newest text act. And so we're able to, we have the most refit version of the best corporate card in market. We have the most recent version of a lot of these things. So we're really, really excited and pleased that we can realize efficiencies from text them, and you should look for more of it.

Speaker Change: Well, thanks for the commentary and congrats on the results.

Speaker Change: Thank you.

Speaker Change: Thank you Matt. As a reminder, it is staff followed by one if you do wish to ask any further questions today. And we have the next question from Michael Rose with Raymond James. You may proceed.

Michael Rose: Hey, good morning, everyone. Thanks for taking my questions. Just trying to better appreciate the long-growth expectations for next year. Can you kind of break it down? I assume some of it's a pickup and utilization. I assume some of it's a migration of customers from lenders that you've hired, you know, over the past couple of years, maybe some re-acceleration of growth and commercial real estate. But if you can just help us better appreciate the complexion of the growth and as it relates specifically to the lenders that have been brought on over the past few years, is the way you see that kind of a multi-year kind of tailwind to growth, kind of regardless of what the broader economy does. Thanks.

Speaker Change: look i do think those tellilwell

Speaker Change: Sorry, I thought I touched on this a little bit before

Speaker Change: The our bandages, we were more relevant to our clients and we cover the entirety of the market. This is Becky Minowarky, Becky Corrapanking.

Speaker Change: and different border collects were chiefs and corporate banking from GDL up there, FIG.

Speaker Change: Deforsified Energy, Governor-not-for-profit.

Speaker Change: which ever part of the economy expands, we will capture. It will capture that because we're also capturing more clients on the platform the year over year than ever before. So, 22 was a record year, 23 is a record year. This year, the year to date, we've gained another 10% more clients than last year. So when loan demand picks up in the economy's economy grows, we will be the beneficiary of that. We're really excited about that. If they don't need bank debt, we could also provide third party capital as well. So, as companies expand, whether it's in the bank market, product capital, product credit market, or institutional market, we'll be there and advise our clients on what is best for their cost of capital.

Speaker Change: Thanks, I'm sorry if I made your repeat something that got on a little bit late. Let's call it a day now.

Speaker Change: He didn't. We like repeating that. Yeah. Okay.

Speaker Change: Alright, maybe just this is kind of one follow-up. I guess the way I kind of think about you guys a lot of work done over the past, you know, a couple years, the chassis's built. I think you have the product set that you want in any additions would be, I would say kind of around the edges is that of a fair characterization and then, you know, just kind of continuing to drive, you know, the positive operating numbers every quarter and just, you know, playing out is, you know, from here. But, but no, a real major kind of additions to the platform at this point.

Speaker Change: That Michael that I can speak on behalf of every employee here, thank we are grateful that that is where we are. We it's been a long transformation as you know and we will, you know, we will have incremental process services that we add. I'm sure and but they are, I would say we are wholly complete.

Speaker Change: with the platform, we could run this platform and be perfectly happy with it as is for a long period of time, but we will continue to be optimistic if you will.

Unknown Executive: All right.

Unknown Executive: Thanks for taking my questions. Thank you.

Speaker Change: Alright, thanks for taking my questions.

Robert Holmes: I would now like to hand it back to Rob Holmes for some final remarks. Look, we're really excited about where we are on the three-year anniversary of where we announced a strategic plan. More convinced than ever, the right strategic plan, the financial results would support that as our strategic actions are turning into financial outcomes, and we're grateful to our clients, our employees, and thank you for listening.

Speaker Change: Thank you. Thank you.

Speaker Change: Thank you, I would now like to hand it back to Rob Holmes for some final remarks.

Unknown Executive: Thank you all for joining the Texas Capital Bancshares Third Quarter 2024 earnings conference call. I can't confirm today's call has now concluded. You may now disconnect from the call, and please enjoy the rest of your day.

Speaker Change: Thank you all for joining the Texas Capital Bank Shares, third quarter to twenty twenty-four. And in conference call, a kind of planned day's call has now concluded. You may now disconnect from the call and please enjoy the rest of your day.

Speaker Change: Music Music